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Congratulations, you have finally found one source of information that is both invaluable and easily applicable for your future investment decisions.

We have read many books, reports and various articles on investments, property investment in particular. The majority of them contain great information, some of them even give you instructions on how to implement that information. However, none of them seem to provide the missing ingredient to convert the intent of the article into the actual result. Their “how to” information is never complete, too complicated or overly simplified.

Finally, out of all our research, we have found a major deficiency in the information provided by other authors -

They do not explain properly why you would invest in the first place!

They do not explain how to measure your investments!

What is the point of investment if you do not have a very specific goal in mind? And if you do have an outcome in mind, how do you know that a particular investment will achieve your desired goal?

We hear many times that people wanting to purchase an investment property, without necessarily knowing why they are buying an investment property in the first place. We have probed for the answer only to receive blank looks, vague statements and complete incomprehension of the questions.

Ask yourself, why would you purchase an investment property?

Is it to create more wealth sometime in the future?

Is it to help you financially on a daily basis?

Is it to generate a specific return on your investment?

Is it because investment property is a better investment than shares?

Do you have answers to the above questions? If you do, how specific are those answers?

We have found that people will generally answer yes to all the above without having any specific outcome in mind.

In this report we will give you the primary tool that you will need to start answering the above questions.

That tool is the ability to measure the return on your invested funds.

If you cannot measure your return, you will never be able to achieve any of your objectives, or you will achieve them through luck and not objective, measured approach. Luck will not let you repeat your investment strategies. Luck is only good in casinos!

So how do you measure returns?

Let’s step back and discuss what is a return on your investment. When people talk about percentage returns or dollar returns on investment, they usually define these returns by time and the baseline investment.

So for example if you purchased a property for $200,000, after 1 year that property might be worth $210,000. Therefore your return on investment is $10,000 in one year or 5% in one year. This example has a specific period of time within which a return is measured.

However, when you measure a return on investment, do you need to measure the return on the whole price of the investment? When you purchase an investment property, do you purchase the property with CASH? Granted, some people in very exceptional and sometimes suspicious circumstances do buy property with cash! You would agree with us when we say that this is extremely rare. In most cases the investment property is purchased with a combination of your money and the bank’s money.

In fact, in most cases, the bank lends the majority of the purchase price – 70% to 90% of the purchase price. This means that generally you only put up your own cash as a fraction of the property price. Given that you have only invested 10% to 20% of the total purchase price, when working out the return on YOUR investment, why would you work out the return on investment based on the whole price of the property? You did not buy the property entirely with cash, therefore you don’t need to work out the return on investment on the entire price of the property.

We can provide an example of this in another field. Say you wanted to purchase an antique chest of drawers. You know that antiques go up in price with time, especially if they are properly looked after.

This particular chest of drawers cost $1,000. You did not have $1,000 so you borrowed $800 from a friend and put up the balance of $200. You made a deal with a friend that at the end of the year once you sell the piece, you will pay him $40 for the loan. At the end of the year you managed to sell the piece for $1,100, or for an extra $100. So you might think that you have made 10% return.

Or $100 profit divided by the $1,000 purchase price. You would be wrong. What you really made was $100 profit less $40 that you have to give to your friend for the loan. That makes $60 profit to you. To calculate your return you need to divide YOUR $60 profit by YOUR $200 investment. This means you made 30%. You only calculate the return on YOUR money and not your friend’s and not on the total purchase price of the antique piece.

Here is an example of how your property investment will look. The numbers are purposely simplified and do not take into account various expenses:

Example 1 – Return on investment based on $200,000 property purchased with an injection of 20% of your own money.

Purchase Price $200,000
Increase in price in 1 year $10,000
Return on Investment in 1 year 5% (this is calculated by dividing the Increase by the Purchase Price)

Example 2 – Return on investment based on $200,000 property purchased with an injection of 20% of your own money.

Purchase Price $200,000
Your investment of 20% $40,000
Increase in price in 1 year $10,000
Return on YOUR Investment in 1 year 25% (this is calculated by dividing the Increase in price by Your Investment)

In both cases the property cost the same and increased in price the same and over the same period of time. However, in Example 2 the return on investment was calculated on YOUR initial cash that you invested into the property. The difference is massive – 500%.

You see, in this example, the bank that lent you 80% of the value of the property is already receiving a return on their investment. It is called interest. They do not require you to give them a part of the property appreciation as well. Given this, you can not count the entire value of the property in your investment return calculations.

Of course it is not as simple as that. There are other considerations that need to be included in the calculations to be precise but the basic idea is correct. If you started applying this method to calculating your return on investment, you will discover that investment property is an extremely high yielding investment returning anything from 20% to 100% per year on your investment. Investment property rivals shares for returns and surpasses shares through removing volatility and risk from your investment.

You have heard from so called experts that investment property will always underperform shares and other investments. You have heard that the only way to receive a high return on investing in property is through appreciation (price growth). You have heard that rent does not give you a high return. You have heard that you have to use Negative Gearing when investing in property to squeeze out any return. Unfortunately, none of these statements are true.

Let us show you why….

Let’s take an example property with the following variables:

Purchasing and Investment details:

Purchase Price (new 2 bedroom unit) $185,000
Bank Loan – 80% $148,000
Interest on Loan (Interest rate 5%) $7,400
Your Contribution – 20% (your cash) $37,000

Cashflow details:

Rent per year (Gross) $10,140
Total Expenses (property management, insurance etc..) $3,100
Rent per year (Nett – rental income after all expenses) $7,040
Total income from tax deductions $1,960
Total NETT rental income plus tax deductions $9,000

From this example we see that your final position by owning this property is that you will have a $7,400 interest bill and about $9,000 in income. Therefore, you will MAKE A SURPLUS OF $1,400 PER YEAR. What does that mean if you work out return on your investment?

Well, you have earned $1,400 on your initial cash investment of $37,000 (your contribution to purchase the property). This represents a return on your initial cash investment of 3.8%. That is low you might say and we would agree with you. You forgot about one thing… this property is paying you money to own it. You have just bought an asset that pays you from day one.

What happens to property over long term? Generally properties go up in price. In fact, the average increase in price recorded over the last 100 years or so is compound 7% per year. If we apply this thinking to the above example, 7% increase on the original purchase price of $185,000 is $12,950.

Therefore to calculate the TOTAL return on your original CASH investment, you need to do the following…..

1. Add the income from rent and tax deductions to the price appreciation.

* $1,400 + $12,950 = $14,350

2. Work out the total return on your initial investment by dividing the above by your investment

* $14,350 / $37,000 = 39%

Amazing, your initial investment of $37,000 used to purchase this property earned you 39% return on YOUR MONEY in the first year. Of course, unlike shares you are not able to cash out and take this profit immediately. With property, you have to wait for some time before you can cash out fully.

To put a 39% annual return on your money in perspective, it is 10 times greater then the bank will pay you. It is 4 times greater then professional fund managers strive to obtain – the same ones that get paid millions in bonuses. It is nearly 2 times greater then the richest man on the planet, Warren Buffet, consistently makes.

How does that compare to all your share investments or any other investment for that matter? Where else can you buy an asset and have it pay YOU from day one and increase in price? Remember property appreciates in cycles, but it ALWAYS appreciates.

This is what property professionals know and do not seem to want to explain to everyone else. Now you know how to calculate real return on your money, not the bank’s money. You do not have to work out the return on the bank’s money, the banks can do it themselves. You need to care only about your funds. So when you do the calculations right, you will find that overall by purchasing the right investment property, you will make up to 100% returns on your money. In the worst case scenario you will only make 30%. Either way, the returns are phenomenally high by normal standards.

All this can be done without any risk and in some cases, with absolutely guaranteed rent!

Now what do I do?

Hopefully we have shown you that property is a remarkable investment that is hard to substitute. Not all properties are the same and you need to watch out for those that may stand empty for long periods or give you tiny tax deductions.

When it comes to real estate investing very few investors actually look at building their property portfolios as a real business. They need a shift in their way of thinking and to approach real estate investing more like an entrepreneur.

In our opinion two of the essential keys to running a successful Real Estate Development business are using great systems and forming great long term relationships.

Entrepreneurs use proven systems and leverage off others to run their business effectively and they view their business as separate from them. They realize that they are not their business and see their business as the end product. A property developer who understands that, has a real opportunity to become very successful.

When you realise that real estate development is a business and that your business is your product, you can then start to work on building your business. To build a successful real estate development business you will need to change the way you think and your approach to real estate investing.

We believe that the ultimate real estate developer is what we call a ‘Real Estate Development (RED) armchair entrepreneur’. You see, the traditional property developer still thinks that real estate development is a job. They believe that time equals work and work equals money, whereas a RED armchair entreprenuer believes that time equals equity and equity equals freedom. In other words if RED armchair entreprenuers spends the time to build equity it will allow them to get free of the business and if they want more freedom they build more equity.

Traditional real estate developers still believe that they need to do the work and be part of the system whereas RED armchair entreprenuers believe that they should build great relationships and have others do the work. This enables RED armchair entrepreneurs to build their businesses much faster.

When the business owner is also the hands on developer it will usually require much more hard work to make the business successful. It is much smarter for anyone considering entering into the industry to set up a business where the systems run the business, and let others run the systems. In other words the systems and other people work for you so you don’t have to.

Working on your business allows you to work on the things that really matter and that will give you the biggest return for your efforts. RED armchair entrepreneurs use systems to streamline tasks and avoid chaos so they can concentrate on growing their business efficiently.

When the systems are being run by others RED armchair entrepreneurs are able to focus their attention on innovation. They can capitalize moments of inspiration and through effective communication they’re able to turn their dreams into reality.

If you think about some of the great property developers, names like Donald Trump will typically come to mind however one of the biggest property developers was actually a school drop-out, Ray Kroc the founder of McDonalds. An entrepreneur with an incredible vision who worked on his business and not in his business.

You see Ray never considered that he was in the hamburger business but rather that he was in the business of real estate. Ray secured development sites in great locations, put fast food restaurants on them which he franchised. Ray Kroc died on January 14, 1984 and was worth an estimated $500 million.

YOUR ULTIMATE GOAL

As business owners and proud parents our most important asset is time and as much as we wanted to be actively involved in real estate development we knew we didn’t want to be traditional real estate developers who worked long hours trading their time for money.

Instead we looked at the big picture and applied the same entrepreneurial skills we had developed in our architectural practice to property development. Real estate development had to contribute to our ultimate goal of achieving financial freedom and giving back.

We knew that when we achieved our ultimate goal it would give us more choices so we could start to live our dream lifestyle according to our core values and with passion and purpose.

To be successful at real estate development you need to connect with what is most important to you. As soon as you start thinking more like a RED armchair entrepreneur and set your ultimate goal or the dream that drives everything you do the more real estate development will give you a sense of direction and purpose.

Your ultimate goal will make you want to jump out of bed in the morning and stay up late, it is your innermost driving force. It will allow you to live your life intentionally, rather than randomly and it will motivate you to achieve your full potential.

Setting your ultimate goal has nothing to do with real estate development. It is about how you want your life to be like.

It isn’t about material things, or about others. There is no right or wrong answer because it will be different for everyone. It is about your life so it is, in essence, what is true for you. Real estate development is only a vehicle that can be used to support your ultimate goal.

To set your ultimate goal, you should start off by asking yourself questions such as:

* What do I need in my life?

* What do I want in my life?

* How do I want to live my life today?

* How do I want to live my life in 2, 10 or 20 years from now?

* What has given me great joy so far in my life?

* If I had a magic wand and my life could be anything I wanted it to be, what would that life be like?

Knowing your ultimate goal gives you the ability to make conscious choices that are consistent with what is important to you, your core values. It will help you set your life’s purpose and put real estate development in its proper perspective.